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Tax
Tip of the Week
For the
week of December 6, 2004
Act quickly if you want to cut your 2004 tax bill
Here are eight year-end actions you might consider if you want to lower your taxes for 2004.
| 1. |
Max
out your retirement contributions. For
2004, the maximum deductible contribution to a
401(k) plan is $13,000 ($16,000 if you'll be age
50 or older before year-end). You can put up to
$3,000 in an IRA ($3,500 if you're 50 or older).
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| 2. |
If
you think you might be hit with a penalty for
underpaying 2004 taxes, have your employer
withhold extra taxes from your last few paychecks.
The IRS treats wage withholding as being spread
evenly over the year.
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| 3. |
Drain
your flexible spending account (FSA). FSAs
allow you to set aside pretax dollars for medical
expenses and child care. After year-end, you lose
any unspent dollars in the account. So squeeze in
expenses to drain your account. Tip: You
can now use account dollars to pay for
over-the-counter drugs.
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| 4. |
Postpone
income and speed up deductions. Some
options: If you run a small business, reduce 2004
taxable income by billing customers after December
31. Make your January mortgage payment in December
to deduct the interest on your 2004 return. Make
planned charitable gifts in December instead of
January.
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| 5. |
Make
gifts of appreciated stock to children age 14 or
older. At that age the children won't be
hit with the kiddie tax, and then can sell the
stock and be taxed at their lower rate. (Or they
can hold the stock until they sell it to fund
college expenses.)
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| 6. |
Make
gifts before year-end to utilize your
tax-free $11,000 gifting allowance for 2004. You
can give this amount to as many individuals as you
like.
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| 7. |
Get
your investment records in order so you
can make wise year-end sell decisions, either to
rebalance your portfolio at the lowest tax cost or
to offset gains and losses.
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| 8. |
Track
down those reinvested dividends for any
stock you sell in 2004. They'll add to your stock
basis and reduce taxable gain.
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"Tax
Tips" are published weekly to provide useful tax
information. Return to this site every week for helpful
tax-cutting suggestions, tax reminders, and current tax
information.
The
information contained in this site is of a general nature
and should not be acted upon in your specific situation
without further details and/or professional assistance.
If you
would like more information on anything in "Tax
Tips," or if you'd like to be on our mailing list to
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please contact our office. We're here to help.
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